BoE closer to rate hike but sterling strength short lived - Reuters poll

Thu Dec 5, 2013 7:31am GMT

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(Reuters) - The Bank of England is moving closer to hiking interest rates from record lows, but most forecasters doubt that will happen until 2015, which will keep sterling in check over the coming year, a Reuters poll showed.

Only a handful of strategists in the latest monthly survey have started to warm up to the idea of a stronger pound, given that the dollar will broadly gain against most currencies once the U.S. Federal Reserve begins to taper its asset purchases.

The Fed is on track to start by March, with a small chance it could do so as soon as January, according to the latest Reuters poll of economists.

The latest survey of 60 FX strategists put sterling at $1.63 in a month, the highest median consensus since August 2011. Cable will then weaken to $1.61 in three months and to $1.58 a year from now.

Those medians were $1.60, $1.59 and $1.55 in the November poll. The pound was trading at $1.63 earlier on Wednesday.

"We expect the BoE to be one of the first major central banks to hike rates, but in 2015 and not next year. The BoE will not give the impression that a rate hike is getting closer for most of 2014," said Roberto Mialich, senior currency strategist at UniCredit.

"In the meantime, we will probably have the Fed that will start tapering. So, in this situation we still think that some of the gain we have seen so far for sterling will be progressively dented."

Half of the 28 currency strategists who answered an extra question in the poll said the BoE would be the first major central bank to raise rates. Eight chose the Bank of Canada, while six said the Fed.

Booming economic growth, coupled with a steady rate of decline in the jobless rate, is likely to prompt the Bank of England, led by former BoC Governor Mark Carney, to consider raising rates sooner that it had anticipated in August.

Carney said in August British interest rates would not rise from their record low 0.5 percent at least until unemployment - at 7.7 percent then - fell to 7.0 percent, and he did not see happening until the third quarter of 2016.

There has been a rift between what financial markets are pricing in and what Carney had projected for jobs growth in August. Then the BoE moved its forecast up at last month's Inflation Report, narrowing that divide a bit.

But still just 12 of 60 currency strategists see sterling higher in a year than its November close of $1.6365. That is almost as many as the 13 of 62 in the last poll but double the six of 63 in the October poll.

"It's a continuation of the same that we've seen over the last six months, whereby the UK economy appears to be doing a lot better," said Adam Cole, global head of FX strategy at RBC Capital Markets, who expects a BoE hike in 2015.

"So still a long way away, but equally I think it is quite possible that UK rate expectations will pre-empt that and move higher, overshoot into the upside."

Britain's economy grew a healthy 0.8 percent last quarter, its fastest pace in more than three years, although that it will moderate to 0.5 percent per quarter through to the end of next year, a Reuters poll last month suggested.

Against the euro sterling is seen at 83.0 pence in a month, 82.6 in three and 80.7 in a year. Those forecasts were 84.3, 83.7 and 82.1 in the previous poll.

(Analysis by Ishaan Gera and Hari Kishan; Polling by Sarmista Sen; Editing by Ross Finley and Larry King)

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